In Civil law there are types of investments that can legally be considered as entrustments. Entrustment, in a legal sense, typically arises when one party (the entrustor) places something of value under the care or management of another party (the trustee or fiduciary) with the expectation that it will be managed, preserved, or utilised for a specific purpose. Entrustment often carries fiduciary obligations to act in the best interest of the entrustor.
Legal Examples of Investments as Entrustments:
- Trust Funds: Investments managed under a formal trust agreement (e.g., under the Trusts Act, 1882) are the clearest example of entrustment. A trustee manages the fund for the benefit of beneficiaries. The trustee is bound by fiduciary duties, including prudence, loyalty, and impartiality.
- Investment by a Power of Attorney: When an individual grants a power of attorney to another party for making investments on their behalf, the attorney-in-fact acts as a fiduciary. The authority given under the power of attorney constitutes entrustment of decision-making and management authority.
- Custodial Investments: When financial institutions or custodians manage investments or securities on behalf of a client, the assets held by the institution can be deemed entrustments. For instance, in discretionary investment accounts, the manager is entrusted with authority to make investment decisions.
- Mutual Funds or Collective Investment Schemes: Investors entrust fund managers with their capital to invest it collectively in financial instruments such as stocks, bonds, or other securities. The managers owe fiduciary duties to act in the best interest of the investors.
- Endowments: Institutional endowments, such as those established by universities or charities, are often investments considered as entrustments. The endowment is managed to generate income while preserving the principal for long-term benefit.
- Islamic Investments (Amanah or Waqf): Under Islamic law, certain investments can be structured as Amanah (entrustment) or Waqf (an endowment for charitable purposes). The manager of these funds is obligated to act as a trustee, fulfilling religious and ethical duties along with financial responsibilities.
- Pension Funds: Employers or pension fund managers act as fiduciaries for employee contributions and ensure the funds are invested prudently to meet retirement obligations.
- Real Estate Investment Trusts (REITs): Investors in a REIT entrust their funds to the management of the trust, which in turn invests in real estate assets and manages them for the collective benefit of the shareholders.
Fiduciary and Legal Implications:
Where investments are deemed entrustments, the managing party assumes fiduciary obligations, which include:
- Duty of Care: To act prudently and diligently in managing the entrusted assets.
- Duty of Loyalty: To act in the best interests of the entrustor or beneficiaries, avoiding conflicts of interest.
- Duty to Account: To provide transparency and proper records regarding the management of entrusted funds.
To formalise such arrangements and avoid disputes, it is essential to draft clear agreements or governing documents (e.g., trust deeds, fund charters, or powers of attorney). These documents should outline the scope of authority, fiduciary responsibilities, and mechanisms for oversight or accountability.
Some investments, such as trust funds, pension funds, or collective investment schemes, are considered entrustments. This means your money or assets are managed by someone with a legal duty to act in your best interest, often under strict rules to ensure transparency and accountability. Examples include trustees managing a trust, fund managers handling mutual funds, or even investments through a power of attorney. It’s essential to have clear agreements in place to protect your rights and ensure your assets are managed responsibly.
Investment as Entrustment in Criminal Law :
The reported case law of Pakistan collectively reinforces the proposition that investments, particularly in business or contractual arrangements, are not inherently considered entrustments under Section 405 or 406 of the Pakistan Penal Code (PPC). Entrustment, as interpreted by these judgments, requires the property or money to be explicitly handed over for safekeeping or specific fiduciary purposes, with the intent of eventual return in its original form. Conversely, investments typically involve a transfer of funds for use in a business or contractual performance, often governed by civil law rather than criminal provisions.
- Malik Zulfiqar Ahmed (2024 YLR 185): The High Court quashed an FIR where the complainant alleged failure to perform a sale agreement, finding no element of entrustment in the transaction. The matter was deemed purely civil, highlighting the limited scope of criminal breach of trust.
- Muhammad Nawaz (2017 PCrLJ 133): The court clarified that receiving earnest money in a sale agreement did not constitute entrustment. Breaches of such agreements fall under the ambit of the Specific Relief Act, 1877, for remedies such as specific performance or damages, rather than being criminal offences.
- Trading Corporation of Pakistan (2016 CLD 2106): The concept of bailment involves clear entrustment, requiring the bailee to exercise due care. Failure to account for bailed goods demonstrated negligence, meeting the requirements for liability under the Contract Act, 1872, rather than invoking criminal breach of trust.
- Hashmat Ullah (2019 SCMR 1730): The Supreme Court held that money invested in a business does not constitute entrustment. The lack of dishonest intention or dominion over property undermined claims of criminal breach of trust, marking the dispute as civil.
- Shumaila Amjad (2020 YLR 1884) and Muhammad Asim (2020 PCrLJ 335): Both cases emphasised the distinction between investment and entrustment. The courts reiterated that investment agreements, even when breached, do not amount to criminal breach of trust as they lack the essential fiduciary relationship.
- Rafiq Haji Usman (2015 SCMR 1575): The Supreme Court further clarified that agreements to sell or invest money, where consideration is paid for specific purposes, fall outside the purview of entrustment. Such cases are subject to contractual enforcement rather than penal consequences under Sections 405 or 406.
- Sadar-ud-Din (1973 PCRLJ 370) and Shaukat Ali Sagar (2006 PCRLJ 1900): These cases reiterated that entrustment involves holding money or property for safekeeping, while investments or business agreements are purely contractual matters. Attempts to criminalise such disputes were quashed to prevent misuse of legal processes.
- Syed Mohsin Ali (2022 PCrLJ 549): The court categorically ruled that arrangements involving money or property for business purposes do not constitute entrustment under Section 405, PPC, further narrowing the scope of criminal breach of trust.
These rulings demonstrate a clear judicial stance that criminal breach of trust is distinct from contractual disputes or investments, which should be resolved through civil remedies. This distinction upholds the principle that criminal law cannot be invoked for enforcing contractual obligations or for disputes lacking a criminal element, thereby safeguarding against the misuse of penal provisions.
Q&A pertaining to whether there be any sort of investment which is considered as an entrustment.
Q1: What is the key difference between investment and entrustment under Pakistani law?
A1: Entrustment under Section 405 of the Pakistan Penal Code (PPC) involves handing over money or property for safekeeping or specific fiduciary purposes, with an obligation to return it in its original form. In contrast, an investment involves transferring money for use in a business or fulfilment of a contract, typically without a requirement for the specific property or money to be returned. The distinction was clarified in Muhammad Nawaz v. SHO (2017 PCrLJ 133) and Hashmat Ullah v. State (2019 SCMR 1730), where investments were held not to qualify as entrustments.
Q2: Can breach of a business contract ever qualify as criminal breach of trust?
A2: No, breach of a business contract alone does not qualify as criminal breach of trust. For breach of trust to occur, there must be evidence of dishonestly misappropriating entrusted property. This principle was upheld in Shumaila Amjad v. Additional Sessions Judge (2020 YLR 1884), where the court stated that money handed over for business investment does not fall within the scope of entrustment. Remedies for such breaches lie in civil law.
Q3: Does receiving earnest money in a property deal constitute entrustment?
A3: No, receiving earnest money does not constitute entrustment. It is a contractual obligation governed by the Specific Relief Act, 1877. In Muhammad Nawaz v. SHO (2017 PCrLJ 133), the court held that such agreements do not amount to criminal breach of trust, as the property was not entrusted but paid for contractual performance.
Q4: If a person fails to return profits from an investment, can it be considered criminal breach of trust?
A4: No, failure to return profits from an investment is a civil dispute, not criminal breach of trust. The Supreme Court in Hashmat Ullah v. State (2019 SCMR 1730) ruled that such cases do not involve entrustment of property but rather a failure in contractual performance. Remedies lie in civil litigation, such as suits for damages or rendition of accounts.
Q5: Are there any exceptions where an investment might qualify as an entrustment?
A5: For an investment to qualify as an entrustment, there must be clear evidence of a fiduciary relationship where the property was entrusted for safekeeping or specific use, rather than for profit-making purposes. In Trading Corporation of Pakistan v. Muhammad Alam (2016 CLD 2106), the handling agent’s liability arose because the property was specifically entrusted for management and safekeeping under a bailment relationship.
Q6: Can the delay in filing an FIR affect the determination of entrustment in investment cases?
A6: Yes, delays in filing an FIR can indicate that the matter is civil rather than criminal in nature. In Muhammad Asim v. State (2020 PCrLJ 335), a six-month delay undermined the criminal nature of the claim. The court noted that such disputes often involve breach of contractual obligations rather than dishonest misappropriation.
Q7: Can a partnership dispute involving money be treated as criminal breach of trust?
A7: No, partnership disputes generally do not involve entrustment of money. In Malik Yameen Awan v. State (2016 PCrLJN 132), the court ruled that handing over money to a partner for investment does not establish entrustment. Such cases are adjudicated in civil courts through rendition of accounts.
Q8: Does dishonesty at the time of receiving money determine entrustment?
A8: Yes, dishonesty at the time of receiving money can establish entrustment if the money was given for safekeeping or specific fiduciary purposes. However, in Hashmat Ullah v. State (2019 SCMR 1730), the court found no evidence of dishonesty or misappropriation, holding that investments made for profit do not constitute entrustment.
Q9: Can criminal proceedings be initiated for non-return of money in an investment?
A9: Not usually. Criminal proceedings require evidence of dishonesty and misappropriation. In Shaukat Ali Sagar v. SHO (2006 PCRLJ 1900), the court quashed the FIR, finding the transaction was an investment and not an entrustment. Criminal law cannot be invoked to enforce civil obligations.
Q10: Does the entrustment of property under bailment fall within the ambit of criminal breach of trust?
A10: Yes, if the property is entrusted under bailment and is misappropriated, it can fall under criminal breach of trust. In Trading Corporation of Pakistan v. Muhammad Alam (2016 CLD 2106), the bailee was held liable for negligence in safekeeping entrusted goods, fulfilling the requirements of entrustment under Section 406, PPC.
Q11: What remedies are available if investment profits are not paid?
A11: If profits are not paid, the appropriate remedies are civil in nature, such as filing a suit for damages or specific performance. This was clarified in Rafiq Haji Usman v. Chairman, NAB (2015 SCMR 1575), where the court ruled that contractual remedies, not criminal law, should be pursued in such cases.
The above analysis demonstrates that while most investments do not qualify as entrustment, exceptions exist when fiduciary obligations or bailment arrangements are established. For other cases, remedies lie in civil litigation rather than invoking criminal provisions.
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